Redfin rumbles in to Rocky’s hometown of Philadelphia

Redfin is expanding its real estate brokerage service into the Philadelphia area, marking the 19th major market for the Seattle company and the first new city in more than a year. Philadelphia is a big market for Redfin, but also a challenging one since the average home sells for just $182,000. That compares to San Francisco where the average now stands at $894,000, the company writes in a blog post.

The lower average home sale prices in Philadelphia could present an interesting experiment for Redfin, which just last month reduced the refunds it provides to buyers. The new rebate model provides smaller rebates for those who buy homes on the lower-end of the real estate scale.

For example, Redfin is now refunding about 25 percent for a $300,000 home, resulting in a $2,000 commission refund. For a $1 million home, the company refunds 45 percent of the commission, for a refund of roughly $13,000. When the company started, it offered a 66 percent rebate but changed that to 50 percent in 2008.

I asked Redfin CEO Glenn Kelman about whether that was a fair mechanism in an interview last month, and he said the lower-end homes have always operated as a “loss leader” for the company.

“A high-end customer in both the old model and in the new model subsidizes the business,” said Kelman. “And that is also true in traditional real estate.”

Given that, Philadelphia represents an interesting choice for expansion. Nonetheless, the company — which is starting out servicing areas such as Chestnut Hill, Mount Airy, Manayunk as well as the northern suburbs in Bucks and Montgomery Counties, as well as in Chester and Delaware — is hoping for big things.

“With such a big data advantage, we expect our online traffic from Philly to take off like a shot,” writes the company. “Even though our newer markets tend to be smaller, they mostly grow faster and faster as Redfin becomes known nationwide. It now takes us about four months to reach 100,000 website visits in a new market, whereas a few years ago it took eight.”

The company said that Philadelphia was a natural spot for expansion, since it is wedged between New York and DC. The company plans to evaluate expansion into other markets this year.

Even though Philadelphia is a scrapper’s town (and Redfin’s Kelman has been known to pick a fight or two in the real estate industry), the company appears to be embracing a softer approach with its arrival. It plans to host its first-ever community launch party on March 28th, and it is inviting everyone from the real estate community in the city to join the fun.

Perhaps Redfin is looking to latch on to Philadelphia’s other nickname: “The City of Brotherly Love.”

In the spirit of Redfin’s move, here’s a little inspirational montage.

John Cook is GeekWire's co-founder and editor, a veteran reporter and the longest-serving journalist on the Pacific Northwest tech startup beat. Follow him @johnhcook and email john@geekwire.com.